Thursday, September 9, 2010

Industrial spot commodities (this chart shows the CRB Spot Commodity Index) are on a tear, having risen over 10% since July. Where there's this much commodity smoke, there is likely an economy (or easy money) that is on fire. A long-term chart of the same index follows. Note the composition of the index—it contains no energy, consists mostly of mundane things that are part of basic industrial processes, and very few have associated futures contracts. This is a very down-to-earth collection of commodities. At the very least the commodity action is a strong vote against the existence of a double-dip recession, and a very strong vote against the risk of deflation. Most likely, it reflects both an ongoing global recovery and easy money. Easy money creates extra demand for commodities, since tangible assets in general are natural hedges against the risk that paper money loses its value.